Currency Forward Calculator
Enter a spot rate, the interest rates for both currencies, and the contract length to get the no-arbitrage forward exchange rate. The calculator applies Covered Interest Rate Parity (CIRP) and instantly returns the forward rate, forward points in pips, the forward premium or discount, and the settlement value for any notional amount. Switch the day-count basis between Act/360 and Act/365 to match your market convention.
Formula
Worked example
Spot EUR/USD = 1.0850, EUR rate = 4.50% p.a., USD rate = 5.25% p.a., 90 days, Act/360 basis. Period rates: EUR = 4.50% x 90/360 = 1.125%, USD = 5.25% x 90/360 = 1.3125%. Forward = 1.0850 x (1 + 0.013125) / (1 + 0.01125) = 1.0850 x 1.013125 / 1.01125 = 1.0870 (rounded to 4dp). Forward points = (1.0870 - 1.0850) x 10,000 = +20.1 pips. The USD has the higher rate so EUR/USD trades at a forward premium.
What is a currency forward contract?
A currency forward (also called an FX forward or forward outright) is a binding agreement to exchange a fixed amount of one currency for another at a pre-agreed rate on a specified future date. Unlike a spot trade, which settles in two business days, a forward settles at maturity - anywhere from a few days to several years away. Corporations use forwards to lock in exchange rates for future receivables or payables, eliminating the uncertainty that comes from currency fluctuations. Importers who know they will need to pay a supplier in a foreign currency in three months can buy the currency forward today at a known rate, regardless of where the spot rate ends up. Exporters do the reverse, selling foreign currency forward to guarantee the domestic-currency value of their revenues.
How the forward rate is calculated (Covered Interest Rate Parity)
The no-arbitrage price of a currency forward is derived from Covered Interest Rate Parity (CIRP). The logic is straightforward: if you can invest at 5% in currency A and only 4% in currency B, rational investors would borrow in B and invest in A to capture the extra 1%. To prevent this free-money arbitrage, the forward rate of A must trade at a discount to offset the interest rate advantage. The formula is: F = S x (1 + r_price x T/basis) / (1 + r_base x T/basis), where S is the spot rate, r_price and r_base are the annualised interest rates for the price and base currencies respectively, T is the number of days, and basis is 360 or 365 depending on the market convention. The result is the exact forward rate at which no profit can be made by borrowing in one currency and investing in another while hedging the FX risk.
Forward points, forward premium, and forward discount
Forward points are the difference between the forward rate and the spot rate, multiplied by 10,000. For example, if the forward rate is 1.0870 and the spot is 1.0850, the forward points are (1.0870 - 1.0850) x 10,000 = +20 pips. Positive forward points mean the price currency trades at a forward premium - it is more expensive to buy in the future than today, because the price currency has a higher interest rate. Negative forward points indicate a forward discount. Banks and brokers quote forwards by adding or subtracting forward points from the spot rate, so knowing the points separately from the spot is essential for reading interbank quotes. The annualised premium or discount shows the per-year cost of hedging, which makes it easy to compare across different contract lengths.
Day-count conventions: Act/360 vs Act/365
The day-count basis affects how the period interest rate is computed from an annualised rate. Most USD, EUR, CHF and JPY money markets use Act/360, meaning interest accrues over the actual number of calendar days divided by 360. GBP, CAD, AUD, NZD and several other markets use Act/365, dividing by 365 instead. Applying the wrong basis can shift the implied forward rate by several pips for short tenors and more for longer ones, so always confirm the convention for each currency with your dealer. For the most common pairs (EUR/USD), USD drives the basis if it is the price currency, so Act/360 applies. For GBP/USD, GBP uses Act/365 for the base and USD uses Act/360, and conventions differ by market practice.
Common Forward Contract Tenors and Market Conventions
| Tenor | Typical Days | Common Use |
|---|---|---|
| Overnight (O/N) | 1 | Cash management, overnight positions |
| Tom/Next (T/N) | 2 | Short-dated settlement adjustment |
| Spot/Next (S/N) | 3 | Next-day from spot delivery |
| 1 Week | 7 | Short-term hedging |
| 1 Month | 30 | Trade finance, payroll |
| 2 Months | 61 | Quarterly budget hedging |
| 3 Months | 91 | Most common corporate hedge tenor |
| 6 Months | 183 | Semi-annual hedging programs |
| 9 Months | 274 | Extended project hedging |
| 1 Year | 365 | Annual budget rate locking |
| 2 Years | 730 | Long-dated project finance |
Standard tenors used in the interbank FX forward market. Longer tenors are available but liquidity thins beyond 1 year for most pairs.
Frequently asked questions
What is the difference between a forward rate and a spot rate?
The spot rate is the current price to exchange one currency for another, with settlement typically in two business days. The forward rate is a future price agreed today for delivery on a specified date beyond spot. The gap between them - the forward points - reflects the interest rate differential between the two currencies over the contract period. If both currencies had identical interest rates, the forward and spot rates would be equal.
Why does the higher-interest-rate currency trade at a forward discount?
Covered Interest Rate Parity ensures that any advantage from a higher interest rate is offset by a corresponding depreciation in the forward market. Suppose currency A yields 6% and currency B yields 3%. An investor borrowing in B and investing in A earns an extra 3%, but the forward rate of A must trade 3% below the spot rate (annualised) so that converting the proceeds back at the forward rate wipes out the gain. This prevents a risk-free arbitrage and keeps both investment strategies equivalent.
What are forward points and how do I read a bank quote?
Forward points are the number of pips (units of the fourth decimal place for most pairs) added to or subtracted from the spot rate to get the forward rate. A bank quote of "spot 1.0850, 3-month fwd pts +20" means the 3-month forward is 1.0870. If the points are negative, subtract them: spot 1.0850 with -25 points gives a forward of 1.0825. The sign tells you whether the price currency is at a premium (positive) or discount (negative) in the forward market.
Can the forward rate differ from the IRP-implied rate?
In practice, yes. Transaction costs, credit risk, liquidity premiums, capital controls and short-term supply-and-demand imbalances can push actual market forward rates slightly away from the theoretical IRP value. The gap is called the cross-currency basis. In the 2008 financial crisis and again during COVID-19, the basis widened significantly as dollar funding stress made USD forwards expensive relative to parity. Normally the deviation is small enough that after accounting for bid-ask spreads, no arbitrage profit is possible.
How is a currency forward settled?
At maturity, the two parties exchange the agreed amounts at the locked-in forward rate, regardless of where the spot rate is at the time. If you locked in a rate of 1.0870 and the spot on the settlement date is 1.1200, the counterparty delivering USD receives fewer EUR than the market rate - but you are protected. Some forwards are non-deliverable (NDFs), where only the gain or loss is exchanged in a reference currency rather than delivering the full notional amounts, which is common for currencies with limited convertibility.
What interest rates should I use in the calculation?
Use the relevant benchmark rate for each currency for the tenor of your contract. For USD, the SOFR term rate or Treasury bill yield for the matching maturity is standard. For EUR, EURIBOR or the OIS rate. For GBP, SONIA term rates. In practice, banks compute their forward quotes from actual money-market deposit rates or swap rates, so the rate you input should reflect what it costs to borrow or invest in that currency for the contract period. The resulting forward rate will be closest to actual bank quotes when you use interbank deposit rates rather than retail savings rates.
How is a forward rate different from a futures contract?
Both lock in an exchange rate for a future date, but they differ in structure. A forward is a private, over-the-counter contract negotiated directly between two parties - typically a corporation and its bank. It can be tailored to any date, amount or currency pair. A futures contract is standardised, exchange-traded, and settled daily (marked to market), which eliminates counterparty credit risk but introduces basis risk because maturities are fixed quarterly dates. Most corporate hedging uses forwards for their flexibility; institutional traders often use both.